Understanding The TILA RESPA Integrated Disclosures
The U.S. government has made major changes to the rate disclosures that consumers receive at the beginning and end of every mortgage transaction. These disclosures have specific timing requirements which impact all home financing transactions.
This overview will help you plan your home finance properly.
Disclosure Rules: The Regulatory Background
Two main regulations protect consumers who finance homes in the U.S. from fees abuses:
The Truth in Lending Act, also known as TILA and Regulation Z, protects consumers against closing cost abuses. It standardizes the way that fees and mortgage terms are calculated and disclosed.
The Real Estate Settlement Procedures Act, also known as RESPA or Regulation X, protects consumers against artificially inflated real-estate transaction costs. It prohibits different housing service providers (like title companies, lenders, attorneys, and insurance companies) from paying each other fees to refer customers to each other.
TILA was created in 1968, while RESPA was created in 1974. Enforcement of these laws now falls to the Consumer Financial Protection Bureau(CFPB), which was established in July 2011.
The CFPB has combined all required disclosures under TILA/RESPA regarding mortgage rates and fees into two simple forms, effective October 3, 2015. This makes it easier for consumers to understand their mortgages.
This initiative is known as the TILA–RESPA Integrated Disclosure Rules, also known as TRID.
The New Disclosures
TRID mandates that consumers receive two disclosures: one at the beginning and one at the end of the transaction.
The lender must provide a Loan Estimate form within three days of your application for a home-purchase loan. This provides a detailed line-item breakdown of fees, cash required to close, rates, terms, and other costs throughout the loan's life. Before the lender can proceed, it must have your consent to proceed.
The lender must send you a closing disclosure form at least three days prior to closing. This looks very similar to the Loan Estimate but includes a breakdown of costs paid by seller and buyer, as well as third-party costs. You're now reviewing the final terms in the same format as you saw them initially. This gives you time to process it.
These links are CFPB samples for each form, so you can see exactly what you will get from each lender.
Disclosure Of Loan Estimates And Timing Rules
The CFPB permits electronic or mail delivery of the Loan Estimate.
If you apply with a lender that uses mail delivery late on Wednesdays, they will mail your Loan Estimate along with the intent to proceed with disclosures Thursday. You might receive it Saturday. However, they won't be able to collect fees or order your appraisal until you consent to Monday, which would already be day six of the process.
You could apply with a lender that uses electronic delivery on Wednesday night. They could send you your Loan Estimate and intent-to-proceed disclosures online that evening. And they could also collect fees and order appraisals that same evening.
Closing Disclosure And Timing Guidelines
Closing Disclosure is almost identical to the Loan Estimate. This makes it easy for you to verify that the closing costs of line items are within the original terms. The Closing Disclosure also clarifies closing costs by indicating which line items are covered by the seller, buyer, or third party.
This information must be provided by the lender at least three business days before closing. Sundays, holidays, and the first day following receipt of the Closing Disclosure are not included.
If you receive your Closing Disclosure on Wednesday, for example, the three-day wait period is Wednesday, Thursday, and Friday. They will then be able to fund your loan and close your purchase of a home on Saturday. This is four days from the date you received the disclosure. It is also the earliest time you can close on your loan. If it is more convenient for both buyers and sellers, you can choose to close later.
